This is the point a lot of folks are wondering about in today’s otherwise good-looking numbers in the monthly jobs report:
Population estimates for the household survey are developed by the U.S. Census Bureau. Each year, the Census Bureau updates the estimates to reflect new information and assumptions about the growth of the population during the decade. The change in population reflected in the new estimates results from the introduction of the Census 2010 count as the new population base, adjustments for net international migration, updated vital statistics and other information, and some methodological changes in the estimation process. The vast majority of the population change, however, is due to the change in base population from Census 2000 to Census 2010.
The adjustment increased the estimated size of the civilian noninstitutional population in December by 1,510,000, the civilian labor force by 258,000, employment by 216,000, unemployment by 42,000, and persons not in the labor force by 1,252,000. Although the total unemployment rate was unaffected, the labor force participation rate and the employment-population ratio were each reduced by 0.3 percentage point. This was because the population increase was primarily among persons 55 and older and, to a lesser degree, persons 16 to 24 years of age. Both these age groups have lower levels of labor force participation than the general population.
The Zero Hedge site suggests this is a deliberate revision to make the unemployment rate appear lower than it is:
A month ago, we joked when we said that for Obama to get the unemployment rate to negative by election time, all he has to do is to crush the labor force participation rate to about 55%. Looks like the good folks at the BLS heard us: it appears that the people not in the labor force exploded by an unprecedented record 1.2 million. No, that’s not a typo: 1.2 million people dropped out of the labor force in one month! So as the labor force increased from 153.9 million to 154.4 million, the non institutional population increased by 242.3 million meaning, those not in the labor force surged from 86.7 million to 87.9 million.
Except that these people weren’t showing up in any other category in the figures of previous months; pretend the BLS discovered a city of 1.5 million people that it had previously overlooked. But that city is probably a college town with a lot of retirees and small children, since only 216,000 of the residents are working and only 42,000 of them are “officially” out of work, meaning actively looking for a job. (Remember my video with my son’s little figures. If you stop looking for work long enough, you’re no longer “officially” unemployed.) The vast majority of this Missing City is made up of people who are “not in the labor force,” and they’re disproportionately women: 297,000 men, 955,000 women.
It is fantastic that the number of Americans working is increasing. But those working Americans are supporting more and more non-working Americans. There are a lot of reasons to leave the labor force, some by choice and generally happy (parenthood, going back to school, affording early retirement) and bad and unhappy ones (despair, unaffordable involuntary early retirement). The number of Americans not in the labor force jumped from 86,001,000 to 88,784,000 with this revision. While they may have been invisible in the previous figures, the bottom line remains the same: a gargantuan number of Americans who could be working aren’t.
As noted before, we usually see the size of the labor force growing consistently under “normal” growth times. Between January 2006 and December 2008, 4.4 million Americans joined the labor force. We’ve been largely stagnant since then: 154,236,000 in January 2009; 154,395,000 last month.
As long as your labor force doesn’t grow, even anemic-to-modest job growth can chip away at the unemployment rate.